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1. A mortgage loan in the amount of Kshs. 100,000 is made at 12% interest for 20 years, payments are made monthly. a) What will

1. A mortgage loan in the amount of Kshs. 100,000 is made at 12% interest for 20 years, payments are made monthly.

a) What will be monthly payment if (i) The loan is fully amortizing? (ii) It is a negative amortizing loan and the loan balance will be Kshs 150,000 at the end of year 20?

b) What will be the loan balance at the end of year 5 under part (a) i and (a) ii above

2. (a) Explain five property interest that can be mortgaged (5 Marks)

(b) An ARM is made for Kshs 150,000 for 30 years with the following terms:

Initial interest is rate is 7% ; index is 1- year treasuries, payment reset each year; margin is 2%; payment cap at 5% increase in a year. Based on estimated forward rate, the index to which the ARM is tied is forecasted as follows: Year 2 is 7%, year 83 is 8.5%, year 4 is 9.5%, year 5 is 11%.

Payment are monthly

Required:

Compute the payment and loan balance for the five year period (15 Marks)

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